2024
Energy Storage Report
Key Regional Markets
Canada
In March 2022, Canada released the 2030 Emissions Reduction Plan, which outlines the country’s national targets for decarbonisation. The goal is to reduce greenhouse gas (GHG) emissions by 40-45% over 2005 levels by 2030, and achieve net zero emissions by 2050. The plan involves a multi-sector approach towards decarbonisation, which includes a commitment to a net zero electricity grid by 2035. This target was set out by Prime Minister Justin Trudeau in 2021 and brings Canada in line with the rest of the G7 nations, who also committed towards achieving this objective in May 2022 (ESG Today, 2023).
A study by consultancy Power Advisory for trade body Energy Storage Canada estimated a requirement of 8-12GW installed energy storage capacity to achieve net zero in its electricity sector by 2035 (Energy Storage News, 2022). Pumped storage hydro (PSH) represents an alternative source of energy storage to help balance the electricity grid with more than 8,000GW of potential capacity identified at nearly 1,200 sites (Hydro Review, 2023). Canadian Renewable Energy Association (CanREA) has set a target of adding 3.8GW of wind and 1.6GW of solar annually till 2050 to meet the Net Zero goal (Taiyang News, 2021). To complement the build-out of solar and wind, storage has been highlighted as a critical third aspect by CanREA.
GDP (Current Prices) USD (2022) | 2,138bn |
GDP Growth Forecast (constant prices) (2023-2027) | 2% |
10yr Govt Bond Yield (12-month rolling average) | 3.42% |
Country Credit Rating (S&P) | AAA |
Battery Storage Capacity | 1.4GWh /356MW |
Pumped Hydro Storage Capacity | 4.8GWh/174MW |
RE share of Total Electricity Capacity | 69.4% |
Battery Storage Outlook | 5GW by 2030 |
Note: Battery Storage Capacity Expressed in GWh assuming an average 4 hours of duration.
Source: IMF, Fred Economic Data, S&P Global, CanREA, HYDROVISION International, Energy Institute, Energy Storage News
For pumped hydro storage: (Hydrovision, 2023)
Energy Mix and Case for Storage
Source: Statistical Review of World Energy Data
The cost of solar and wind power has been decreasing significantly, making them a competitive alternative to natural gas-based power in the provinces of Ontario and Alberta. Experts predict that renewable energy costs will decrease by 40% by 2035, which is when Canada aims to achieve net-zero electricity generation (Clean Energy Canada, 2023). Notably, the country’s legislation provides for phasing out all unabated coal-based power generation facilities by 2030 (Canada’s National Observer, 2024). Adding energy storage to the energy mix will allow wind and solar to offer cost-competitive grid power that is dispatchable, beating gas peakers and coal baseload plants.
The legal framework surrounding energy storage in Canada varies by province, given the decentralised nature of governance in the country. Ontario and Alberta have taken the lead in enacting legislation to facilitate the integration of energy storage in their power grids and market systems. In October 2022, Ontario confirmed that 1.5GW of capacity had been set aside for utility-scale battery storage out of a total requirement of 4GW of new power capacity, expected to come online in 2025 (PV Magazine, 2022). Canada is estimated to reach 5GW of battery storage installed capacity by 2030, with Ontario and Alberta accounting for the bulk of that capacity (Energy Storage News, 2023).
PSH represents another storage technology that can be potentially tapped given Canada’s capabilities in hydropower, estimated at 83.7GW installed capacity, the fourth largest globally after China, Brazil, and the USA. However, PSH installed capacity is minuscule compared to 174MW installed capacity as per IRENA. This is likely to change as several PSH projects, such as the 75MW Canyon Creek PSH project (TC Energy) and the 900MW Brazeau PSH Expansion project (Power Technology, 2023), both located in Alberta, are in the pipeline undergoing technical evaluation.
Capacity: Status and Trend
The Canadian energy storage market is gradually gaining momentum, as evident in the rise in incremental capacity addition. By the end of 2023, 142MW of new storage power generation capacity came online. This marks a drastic jump from the previous year’s 50MW in new capacity. Furthermore, between 2019 and 2022, the total capacity base shows an over 300% rise (CanREA, 2024). A policy-led thrust by various provinces helped in achieving the growth in renewable energy and storage capacities.
Of late, the Canadian province of Alberta has been at the forefront of energy storage capacity growth. As of end-2023, Alberta contributed over 90% of the country’s total energy storage capacity growth. The province has a huge pipeline of projects under various stages of development, which could help sustain the pace of growth. Another province, Ontario, leads the way in terms of total installed storage capacity (over 100MW) but not in terms of new capacities. Ontario’s project pipeline and conducive policies could change its existing relative position.
CanREA’s 2050 Vision document estimates requiring more than 5GW of new wind and solar capacity to be added to the grid yearly to achieve Net-Zero by 2050 (CanREA, 2023). 2GW of renewable projects are under construction, with an additional 6GW in advanced stages of development, of which 5GW is wind, 2GW solar and the balance 1GW of energy storage is expected to come online in the short term. While a majority of prevailing energy storage capacity is of the short duration of 1-2 hours, 4-8 hours long-duration energy storage (LDES) installations are being added to the pipeline and are likely to offer a very cost-competitive solution to daily electricity load management and contribute meaningfully to achieving grid stability (Clean Energy Canada, 2023).
Policy and Regulation
Canada’s decarbonisation initiatives hinge on the 2035 Net-Zero electricity generation target, which factors in a scenario that involves an increase in electricity demand and the progressive phaseout of carbon-intensive generation resources. Canada’s Federal Budget for 2023 allocates an estimated $25.7 billion between 2024 and 2035 through the Clean Electricity Investment Tax Credit (ITC) (Canadian Climate Institute, 2023). The ITC provides up to 30% refundable investment tax credit for the capital cost of “clean technology property”, which includes a variety of energy storage solutions such as batteries, flywheels, supercapacitors, magnetic energy storage, compressed air storage, pumped hydro storage, gravity energy storage and thermal energy storage (Lexology, 2023). Funding support has also been made available through the Smart Renewables and Electrification Pathways (SREP) program, which provides $3 billion over 13 years for renewable energy and electricity grid modernisation projects (Government of Canada, 2023). Financing for storage projects is also made available through the Canada Infrastructure Bank, which allocated $10 billion for clean power and an additional $10 billion for clean growth infrastructure projects (Government of Canada, 2023).
The challenge associated with varying legislation across various provincial power markets is also being tackled by developing a Clean Energy Standard (CES) defining Clean Energy Regulations (CERs). The draft CERs were released in August 2023 and set emission standards for electricity generation expected to deliver an estimated $29 billion in net benefits between 2024 and 2050 (Government of Canada, 2023). In being technology-neutral, policymakers have tried to impart flexibility to integrating energy storage in the electricity grid, depending on provincial factors and the availability of generation assets. For instance, storage assets can be paired with hydroelectric projects to dispatch power to urban centres without investing in expensive transmission assets. Co-located with solar or wind generation, batteries can mitigate the intermittency of energy supply while enabling power dispatch at appropriate time slots.
At a provincial level, Ontario is leading the way by organising the largest battery storage capacity procurement process in Canada’s history, aimed at procuring 2.5GW of new, standalone energy storage resources. RFPs for the Procurement of Expedited Long-Term Electricity Reliability Services (E-LT1) and Procurement of Long-Term Electricity Reliability Services (LT1) were started in March 2023 (Ontario Canada, 2023). The Independent Electricity System Operator (IESO) has awarded 739MW and 142MW storage capacity in two phases in E-LT1, with the LT1 process expected to procure approximately 1,600MW until April 2024 (JD SUPRA, 2023).
In Alberta, the regulatory authority approved the rules framed in Energy Storage ISO Rule Amendments, on June 13, 2023. These will come into effect on April 1, 2024 (AESO Canada). There are 19 grid-scale storage projects in the Alberta Electric System Operator’s (AESO) active connection queue, two of which with a cumulative capacity of 86.5MW are under construction, while 11 are co-located storage projects, awaiting approvals in the aftermath of the provincial government’s pause on new renewable energy plants till February 2024 (Lexology, 2023).
Market Developments and Opportunities
Ontario and Alberta have been market leaders for energy storage in Canada, accounting for more than 90% of the anticipated capacity (Energy Storage News, 2023). Investment into the storage sector has been mobilised from private and public sources. In Ontario, the E-LT1 contract winners include Boralex (380MW across two projects), Capital Power (114MW), and NRSTor/Northland Power (250MW). SolarBank Corporation was awarded the EPC contract valued at $26 million for three storage projects of 4.74MW capacity, each with a 4-hour discharge duration (Construct Connect, 2023). These projects are expected to be operational by the summer of 2025.
The Ontario IESO is expediting the procurement of additional battery storage capacity as shortfalls are projected from 2025 onwards due to increased demand for electricity and planned refurbishments to nuclear generation assets. The IESO expects to add 46GW of new generation capacity from current levels by 2050, requiring additional BESS capacities (Energy Storage News, 2024). In Alberta, Natural Resources Canada (NRCan) invests more than $160 million into nine solar-plus-storage projects with an aggregate generation capacity of 163MW and storage capacity of 48MW (Government of Canada, 2023).
The Alberta IESO (AESO) has reported a pipeline of 2,500MW energy storage projects in the queue for grid connections, two-thirds of which are standalone installations. At the same time, the rest are co-located with renewables or thermal-based generation assets (Energy Storage News, 2023). Other provinces, such as New Brunswick and Nova Scotia, have also launched energy storage initiatives. NB Power has invited proposals for 50MW of energy storage projects in New Brunswick. At the same time, Nova Scotia amended its Electricity Act in March 2023 to enable competitive procurement of energy storage solutions, which was previously the sole purview of Nova Scotia Power (Energy Storage News, 2023). As of February 2024, the Canada Infrastructure Bank announced a $138.2 million commitment towards the storage project to be developed by Nova Scotia Power (NS Power) (Cision, 2024).
Behind-the-meter (BTM) storage applications are expected to pick up as incentives linked to the Greener Homes Grant, which offers up to $1,000 in incentives to install batteries combined with a solar PV system (ZENO, 2022). Growth is not restricted to the residential segment alone. At a provincial level, Ontario’s ‘Global Adjustment (GA) electricity charge has been instrumental in driving energy storage installations within the commercial and industrial (C&I) consumer segment. Battery storage offers consumers alternate power sources during peak demand periods, thus optimising GA charges. Ontario is reported to host 225MW of large-scale BTM energy storage installations at commercial & industrial (C&I) applications to offset the GA charge. Global players such as Enel have been expanding their presence in Ontario, doubling its capacity to 37MW in 2022 from 16MW a year earlier. Sustained expansion in Ontario is central to Enel’s $5 billion investment programme in North America, buoyed by supportive factors such as growth in electricity demand, growing electrification of industries and declining battery technology costs (Sustainable BIZ Canada, 2023). The Imperial’s Sarna petrochemical complex is developing North America’s largest BTM battery storage system, having an installed capacity of 20MW, owned and operated by Enel X. Its participation in Ontario’s demand response program will help establish the feasibility of using distributed energy resources (DERs) in decarbonisation initiatives.
Most of the energy storage procurement done to date has been primarily short-duration (4 hours or lesser discharge). As the role of energy storage in Canada’s energy transition plan expands, the focus will shift to long-duration energy storage (LDES). Notable LDES projects in Canada include the 174MW OPG pumped storage hydro (PSH) project in Niagara Falls. Other major PSH projects that are proposed include the 400MW Marmora project at an abandoned iron ore mine in Ontario and three others across Alberta (2) and Georgian Bay in Ontario (1) (Canada’s National Observer, 2023). The Canadian energy company TC Energy is working on developing a new revenue framework for its planned $3.3 billion PSH project that has been in consideration since 2019 but held up for an official sign-off. With recent inputs from the Ontario government, this company aims to submit the proposed revenue framework by July 2024, after which construction can commence subject to approval. The proposed plant is for 1GW of long-duration storage capacity (Energy Storage News, 2024).
In April 2022, the Canada Pension Plan Investment Board (CPPIB) committed $25 million in investment into Hydrostar, a leading long-duration energy storage solution provider, to develop Advanced Compressed Air Energy Storage (“A-CAES”) facilities (CPP Investments, 2022). This follows Goldman Sachs Asset Management’s recently announced $250 million investment into Hydrostar (Hydrostor, 2022). Public funding for energy storage has also been available through the Department of Natural Resources or NRCan. Initiatives such as the Charging the Future Challenge, launched in 2019, aim to accelerate battery technology innovations.
The energy storage sector’s long-term growth depends on access to various services within the electricity grid. This would open up potential revenue streams that would enhance the financial viability of storage assets. CanREA’s position paper to promote energy storage identifies 13 service areas, such as capacity, peak shaving, voltage support, frequency regulation, and demand charge reduction. However, existing market structures and payment mechanisms will need to be modified to accommodate the characteristics of energy storage projects to mobilise investment.
Outlook
Canada will reach at least 5GW of cumulative battery storage capacity by 2030 based on the prevailing project pipeline. Trade Association has projected a requirement of 8-12GW of energy storage capacity by 2035, factoring in catalysts such as substantial growth in demand for electricity (electricity demand in Ontario to average 1.7% annual growth over the next two decades), growing electrification of processes in key manufacturing industries and replacement of capacity vacated by emitting generation sources (Energy Storage News, 2022).
The Canadian regulatory authority projected battery storage power capacity to reach 6GW by 2050 to meet the requirements of Canadian Net Zero objectives (Canadian Energy Regulator, 2023). Hydrogen and hydro power are other sources which may supplement the battery storage capacity addition in the projected energy mix by 2050.
The subsequent growth stage can revolve around developments in the LDES segment. Industry working groups have begun consultations that will eventually enable supporting fiscal benefits such as preference within the tax credit scheme to spur investments. Additionally, increased transparency into remuneration mechanisms for a growing portfolio of ancillary services is likely to attract vital private investment into the sector.